California’s Assembly Bill 5 was intended to protect workers from being misclassified and exploited by employers.
When the measure became law this year, many hoped that it would force companies, such as ridesharing companies Uber and Lyft and others to reclassify certain freelance workers and extend to them benefits, such as unemployment insurance, disability compensation, health insurance, vacation time and more.
In reality, though, few have been pleased with the measure, which affects many–but not all–businesses that rely on gig workers in California. And some of the most vocal critics have been contract workers, themselves, who say they now are losing job opportunities because of AB5’s requirements. As the statute became law, many companies severed long standing freelance contracts out of an abundance of caution.
At least a half-dozen legal challenges have already been filed against AB5. One federal judge has already said that truckers are exempt from the statute, and recently a state judge even suggested grocery-delivery service Instacart is violating AB5 by misclassifying some of its workers.
Now, more than 30 separate pieces of legislation related to AB5 have been introduced in the California Legislature since the start of 2020. Most of the proposals would expand the list of occupations exempt from AB5’s current mandates. Some of the occupational exemptions being sought are for pharmacists, marriage therapists, youth sports referees and even loggers.
Other states are considering adopting similar legislation. This is most likely to occur in states in which the government is controlled by Democratic majorities such as Colorado, Nevada, New Mexico, and Oregon.
Regulatory compliance is a crucial aspect of any company, and infractions can be costly with fines running as high as $25,000 per violation. Until any of these exemptions are approved, Full Velocity Consulting continues to caution its clients on the measure as it now stands.
Right now, AB5 requires companies that hire independent contractors to reclassify them as employees unless they can prove the contractors:
● Are free from control or direction in work performance
● Perform specialized services that differ from a client’s usual business
● Maintain an independently established business offering services to clients
Additionally, freelancers performing creative services such as writing, photography and other arts face limits on how many contracted assignments they can perform before facing reclassification as full-time employees.
Changes might be coming for AB5, and that’s a good thing for a statute so flawed. Until then, companies need to be aware that AB5 remains a potential costly risk for any company working with California contractors.